Prime Minister Atal Bihari Vajpayee Friday said rules and regulations should be simplified for speedy liberalisation of the small and medium enterprises sector since the sector was still being stifled by the Inspector Raj despite eleven years of liberalisation.
"This should be done by making necessary changes in the legal and administrative framework. Rules, regulations, procedures and guidelines should be amended wherever necessary, and simplified after taking small and medium enterprises into confidence," Vajpayee said while addressing a global summit for SMEs.
The summit was jointly organised by Ficci and the ministry of small scale industries.
The prime minister said the nomenclature of small-scale industries was a 'misnomer' considering its 'big' contribution to the economy. He added: "Thus, the attention that governments and financial institutions ought to pay them also has to be great."
Vajpayee also made a case for offering lower lending interest rates for the enterprises by saying that the sector was getting credit at 13 per cent or more against 10 per cent or less for big companies and individuals for housing loans.
Vajpayee added that national financial institutions were not sufficiently responsive to the needs of the sector.
While acknowledging the risk element in lending for the sector, Vajpayee said, "The challenge before all of us is how to reduce that risk, and how to increase stability, sustainability and the success rate of the sector."
At the same time, he said, India was no exception to the sickness in the sector, where half the SME start-ups world-wide did not survive five years and added that there was a need for serious global thinking on how to ensure greater stability of SMEs.
Vajpayee said it was particularly pertinent to consider problems of SMEs in developing and least developing countries as "huge resources available with the transnational financial institutions controlled by the developed countries are not adequately serving the needs of the SME sector".
"While the big can still afford to deal with a myriad of rules and rulings, those whose whole business often comprises only a dozen people (or less) cannot afford to have even one of them tied down in filing forms and 'managing' the governmental system," the prime minister emphasised.
Stating that the SME sector was at the crossroads, Vajpayee said though the sector had the flexibility to adapt to the changes much better than the larger counterparts, "it was also true that the process of globalisation had impacted the small and medium enterprises much more than larger business enterprises".
He added that because the margins across industries were rather thin, a slight change in the costs abroad, or even within a nation, can undercut one's competitiveness and thus SMEs were particularly "vulnerable" on account of their low resource base.